Abstract:

 The relationship between foreign direct investment (FDI) and gross fixed capital formation (GFCF) has revealed noteworthy interest and been increasingly attracting attention from researchers, practitioners, as well as academics. In line with this increasing interest, this paper tries to scrutinize the relationship between foreign direct investment and gross fixed capital formation in Turkey. Using Zellner's Seemingly Unrelated Regression (SUR) method as a system of two simultaneous equations and covering the data from 1970 to 2008, the empirical findings of the study reveal that capital formation is positively associated with FDI, along with domestic debt and capital market financing, but negatively correlated with stock market liquidity. The results also confirm that there is no statistically significant link between capital formation and foreign credit or state subsidies. This study finally proves that FDI is a substitute for domestic credit but is complementary with foreign credit and privatization revenues. 

Keywords: